indian IT: Here’s how TCS, Infosys are tackling skill shortage in US

Here’s how TCS, Infosys are tackling skill shortage in USHere’s how TCS, Infosys are tackling skill shortage in USJochelle Mendonca and Ayan Pramanik Indian IT companies have begun ‘hoarding’ employees and subcontractors in the US, ahead of deals in which to deploy them, as a limited number of technology workers is restricting the sector’s ability to win and deliver deals in their largest market. | ET Bureau | Jan 15, 2019, 10:06AM IST

Indian IT companies have begun ‘hoarding’ employees and subcontractors in the US, ahead of deals in which to deploy them, as a limited number of technology workers is restricting the sector’s ability to win and deliver deals in their largest market.

In the nine months to December, TCS has signed contracts worth about $15 billion and Infosys won over $4.5 billion, nearly a third of them in the newer digital segments, which require people to work alongside clients onsite.

“The supply side constraint in this (US) market is a real constraint and obviously that will play out in cost terms, as well as in terms of availability,” TCS chief executive Rajesh Gopinathan told analysts.

Unemployment in the technology sector in the US dropped below 2% in 2018 and the September data from the US Bureau of Labour Statistics show a massive gap in jobs and supply. Only one out of four software jobs were being filled.

There were nearly 115,000 jobs a month available for application software developers and fewer than 32,000 hires. Network and Computer System Administrators had 70,000 posting a month and less than 19,000 monthly hires.

Traditionally, Indian IT firms relied on H-1B visas to send experienced talent to work onsite but increased protectionism in the US has forced them to reduce this number and depend on local workforce.

The lack of talent has led the largest Indian IT company Tata Consultancy Services to begin ‘hoarding’ tech workers in the US, according to brokerage Nirmal Bang.

“TCS is being aggressive in stocking up on talent because it does not want to be caught with demand fulfillment problems that some of its peers faced in recent times and (they don’t want) talent to come in the way of achieving industry-leading growth,” Girish Pai, analyst at Nirmal Bang, told ET. He added that the availability of the right talent was increasingly a ‘critical factor’ in gaining market share and companies were locking subcontractors in advance.

Failing to lock in talent could lead to companies paying high costs later. In November, the sector got a sense of just how much a talent shortage could hit growth. DXC Technology, a US listed IT provider, said inability to bring on employees quickly cost it nearly $100 million in revenue.

“We saw delays in the ramp-up of a few large digital contracts. And while we continue to see strong market demand for our digital solutions, it is taking us longer than expected to bring on resources to support the digital growth,” John Michael Lawrie, CEO of DXC Technology, told analysts. “Several clients were also behind in scaling their digital transformations. Together, these delays impacted revenue in the quarter by roughly $100 million.”

For the third quarter, TCS’ subcontractor costs increased by 33% year-onyear to Rs 2,822 crore, while Infosys said sub-contracting cost rose by 55% (YoY) without disclosing specifics, HDFC Securities said in a note. Infosys’ third quarter margin also contracted partly as a result of higher onsite costs.

“Today, given the visa issues and challenges, our ability to depute people quickly from offshore to onsite is not as flexible as it used to be in the past. So, we have to use subcontracting as a short-term lever to make sure that we fulfill the demand,” UB Pravin Rao, chief operating officer at Infosys, said at the third quarter results last week. He added it was difficult to predict when the use of subcontractors could end.

Mid-tier players such as Hexaware and Persistent Systems have talked about talent shortages. Subcontractors, who can come on at short notice and can cost as much as 25% more than an employee, are now a key part of IT companies’ strategy in the US market.